Request for Determination of Substantial Damage With Respect to the Cessation of the Obligation to Contribute by Kane Transfer Company to the Freight Drivers and Helpers Local Union No. 557 Pension Fund

PENSION BENEFIT GUARANTY CORPORATION

Request for Determination of Substantial Damage With Respect to

the Cessation of the Obligation to Contribute by Kane Transfer Company

to the Freight Drivers and Helpers Local Union No. 557 Pension Fund

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Notice of No Determination.

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SUMMARY: This notice advises interested persons that the Pension

Benefit Guaranty Corporation (the ``PBGC'') has declined to make a

determination of substantial damage under section 4203(d)(4) of the

Employee Retirement Income Security Act with respect to the cessation

of contributions under the Freight Drivers and Helpers Local Union No.

557 Pension Fund by Kane Transfer Company. Section 4203(d) provides a

special withdrawal rule for the trucking industry, under which a

trucking employer is not considered to have withdrawn from the plan if

certain conditions are met, including the furnishing of a bond or

escrow. After the bond/escrow requirement has been satisfied, the PBGC

may make a finding under section 4203(d)(4) that the cessation

(considered together with other cessations) has substantially damaged

the plan's contribution base. In this event, the employer will be

treated as having withdrawn from the plan and the bond or escrow will

be paid to the plan. Alternatively, the PBGC may find under section

4203(d)(5) that no substantial damage has been caused, in which case

the bond will be canceled or the escrowed amount returned to the

employer, and the employer will have no further liability under the

plan. The purpose of this notice is to advise interested persons that

the PBGC has declined to find substantial damage in this case.

FOR FURTHER INFORMATION CONTACT: Thomas T. Kim, Office of the General

Counsel, Pension Benefit Guaranty Corporation, 1200 K Street, NW.,

Washington, DC 20005-4026; telephone 202-326-4020 ext. 3581 (For TTY/

TDD, call the Federal relay service at 1-800-877-8339 and ask to be

connected to 202-326-4020).

SUPPLEMENTARY INFORMATION:

Background

Section 4203(d) of the Employee Retirement Income Security Act, as

amended (``ERISA''), provides a special withdrawal rule for the

trucking industry. That industry, for purposes of this rule, is

considered to include the long and short haul trucking industry, the

household goods moving industry, and the public warehousing industry.

The rule is limited to trucking industry plans, i.e., plans under which

substantially all of the contributions required are made by employers

that have an obligation to contribute primarily for work in the

trucking industry.

Under section 4203(d), a trucking employer will not be considered

to have withdrawn from a trucking industry plan merely because the

employer permanently ceases to have an obligation to contribute under

the plan or permanently ceases all covered operations under the plan,

if certain conditions are met. One condition is that the employer must

not continue to perform work within the jurisdiction of the plan.

Another condition is that the employer must furnish a bond or establish

an escrow account in an amount equal to 50 percent of its withdrawal

liability.

After the bond is posted or the escrow established, the PBGC may,

within 60 months after the cessation of the employer's covered

operations or obligation to contribute, make a determination about the

effect of the cessation (considered together with any cessations by

other employers) on the plan's contribution base. If the PBGC makes a

finding under section 4203(d)(4) that the contribution base has

suffered substantial damage, the employer will be treated as having

withdrawn from the plan on the date when the obligation to contribute

or covered operations ceased. In that event, the bond or escrow will be

paid to the plan, and the employer will be liable for the remainder of

the withdrawal

[[Page 1512]]

liability. If the PBGC makes a finding under section 4203(d)(5) that no

substantial damage has occurred, or if it does not make a finding of

substantial damage under section 4203(d)(4) within the 60-month period

referred to above, then the bond will be canceled or the escrow

refunded, and the employer will have no further liability with respect

to the cessation.

The Request

The Freight Drivers and Helpers Local Union No. 557 Pension Fund

(the ``Fund'') has requested that the PBGC find that the cessation of

contributions by Kane Transfer Company (``Kane''), together with

cessations by other contributing employers, has resulted in substantial

damage to the Fund's contribution base. The Fund represents that over

90 percent of its contributing employers are trucking employers. It

also asserts that Kane is a trucking employer and ceased all covered

operations under the Fund in December 1993.

On June 9, 1997, the PBGC published (at 62 FR 31465) a notice of

the pendency of the Fund's request. The notice solicited comments by

interested persons; Kane submitted the only comment in response to the

notice. The factual data in this notice are derived from information

submitted by the parties.

The Decision

Over the 1980-1995 period, the contribution base of the Fund, i.e.,

the number of hours for which contributions are required, fell by

nearly 60 percent, from 5.5 million in 1980 to 2.3 million in 1995. In

the 5-year period ending with 1995, the contribution base declined by

13 percent (although the contribution base increased by about 3 percent

between 1994 and 1995). The number of active employees declined from

3,496 in 1980 to 1,287 in 1995, a drop of over 60 percent. The number

of active employees fell by just over 20 percent in the 1991-1995

period.

During the 1986-1994 period, 29 contributing employers withdrew

from the Fund, leaving 28 employers in the Fund as of the end of 1994.

Since 1990, 13 employers have withdrawn.

As the Fund's contribution base declined, its contribution rate

increased. In 1980, the highest hourly rate was $1.13; in 1986, that

rate was $1.95; and in 1995, it was $2.93. Net employer contributions

have declined from nearly $8 million in 1986 to $6.3 million in 1995.

However, since 1992, contributions have increased slightly. In the

1986-1995 period, benefit payments exceeded net contributions in all

but one year. Plan assets increased by nearly 70 percent during this

period.

The Fund's unfunded vested benefits in 1992, the year prior to

Kane's withdrawal, was $12 million; in 1993, it rose to $18 million.

Since 1993, unfunded vested benefits have declined. In 1994, the figure

was $5.8 million, and as of the January 1, 1996 valuation, the market

value of assets slightly exceeded the actuarial present value of all

accumulated benefits.

The January 1, 1996 valuation indicates that projected employer

contributions for 1996 would exceed the sum of normal cost, 15 year

amortization of unfunded liabilities, and administrative costs

(collectively, ``scheduled costs'') by 26 percent. In 1994 and 1995,

contributions exceeded scheduled costs by 14 percent and 23 percent,

respectively.

Kane has filed a response urging the PBGC to reject the Fund's

request on the basis that the Fund has not shown that it has suffered

substantial damage to its contribution base. Kane asserts that the

Fund's contribution base has been stable or even increasing, ``having

grown by 3% between 1994 and 1995.'' Furthermore, according to Kane,

the documents submitted by the Fund show ``no unfunded liability * * *

projected contributions exceeding projected costs by more than 20% in

1996, and tremendous income to the Fund from investment growth.''

After reviewing the information submitted by the Fund and by Kane,

the PBGC concludes that it is unable to find that the Fund has suffered

substantial damage to its contribution base as a result of Kane's

cessation of contributions considered together with other cessations.

Although the information submitted shows that the Fund has experienced

a significant decline in contribution base units (``CBU's'') and total

contributions since the 1980's, these declines must be considered in

the context of the Fund's overall financial condition, which has been

improving. Unfunded vested benefits have declined since 1993 and annual

contributions are in excess of the amount required to meet the minimum

funding standard. Furthermore, the Fund's assets have increased by

nearly 70 percent during the 1986-1995 period. Those conditions

militate against a finding of substantial damage to the contribution

base.

Nevertheless, the facts presented do not demonstrate that the Fund

has suffered no substantial damage to its contributions base as a

result of employer cessations. Accordingly, the PBGC declines to find

either substantial damage or no substantial damage, under ERISA

sections 4203(d)(4) or (d)(5), respectively. The effect of this

decision is that the bond or escrow furnished by Kane shall remain in

place until the expiration of the 60-month period described in section

4203(d)(4), unless and until the PBGC should hereafter be requested to

and make a finding of either substantial damage or no substantial

damage as a result of Kane's cessation considered together with other

employer cessations.

Issued at Washington, D.C., on this 30th day of December, 1997.

David M. Strauss,

Executive Director.

[FR Doc. 98-536 Filed 1-8-98; 8:45 am]

BILLING CODE 7708-01-P